2015 (8) TMI 148 - AT - Central Excise

Duty demand - shortage of fabrics - Suppression of facts - Invocation of extended period of limitation - Held that - Show-cause notice was issued for confiscation of the excess goods seized at their units. The adjudicating authority had decided the said show-cause notice and imposed penalty under Rule 173Q for improper maintenance of statutory records. From the above, we find that the proceedings initiated in the show-cause notice dated 14.8.2000 was entirely different and it is only related for the excess stock found in the premises which was not accounted in the RG-I Register and there was no demand since the physical goods were available, the adjudicating authority has not ordered for confiscation as there is no likelihood of removing clandestinely whereas in the present case the show-cause notice relates to the demand of excise duty on the shortage of goods for the past period and the facts in the first show-cause notice are different from the facts in the present show-cause notice. - demand of duty on the shortage of goods confirmed by the adjudicating authority is sustained. As regards limitation, the present show-cause notice is issued for demand of duty on the shortage of goods noticed for the period in dispute and has no relevance with the first show-cause notice dated 14.8.2001. Therefore, appellant s reliance on the Hon ble Supreme Court s decision is not applicable to present case. Statements recorded from various persons clearly prove the continued shortage of goods over the period. The very fact that the appellant themselves have constituted two committees, as directed by CAG Audit Report, proves that there was huge shortage where the appellants were unable to explain the reasons with clear evidence. Therefore, we hold that the adjudicating authority has rightly confirmed the demand and invoked the extended period as there was clear suppression of facts. - demand of excise duty on the huge shortage of finished goods and imposition of equal penalty with interest is liable to be upheld. - Decided against Assessee.

Summary

Issues Involved:
1. Shortage of finished goods and demand for excise duty.
2. Invocation of the extended period under Section 11A.
3. Applicability of limitation and suppression of facts.
4. Justification for the penalty imposed under Section 11AC.

Detailed Analysis:

1. Shortage of Finished Goods and Demand for Excise Duty:
The Department conducted a physical stock verification and found a significant shortage of finished goods compared to the statutory records, specifically an 8,79,372 MT discrepancy. The Commissioner of Central Excise confirmed the demand for excise duty amounting to Rs. 1,84,19,199/- based on this shortage. The appellant argued that the shortage was due to the elongation of fabrics recorded between June 1995 and August 1997, which was 4.68%, and later reduced to 3.34% from September 1997. However, the adjudicating authority did not accept this explanation, stating that the elongation related only to processed fabrics, whereas the shortage included both processed and unprocessed fabrics as well as made-ups. The authority allowed a shrinkage percentage of 1 to 1.5% but found the appellant's internal committee report insufficient to substantiate the claimed elongation.

2. Invocation of the Extended Period Under Section 11A:
The Department invoked the extended period under Section 11A, citing suppression of facts. The appellant contended that the demand was time-barred since the Department had already issued a show-cause notice on 14.8.2001 for confiscation of excess goods, which was adjudicated on 7.1.2002. The adjudicating authority, however, differentiated the two notices, stating that the first notice was for confiscation of excess goods found during physical verification, while the present notice was for demanding duty on the shortage of goods over a past period. Thus, the extended period was deemed applicable due to the continued shortage and suppression of facts.

3. Applicability of Limitation and Suppression of Facts:
The appellant argued that the second show-cause notice should not have been issued as it was based on the same set of records and facts as the first notice. The adjudicating authority rejected this argument, clarifying that the first notice dealt with excess stock present in the factory, while the second notice addressed the shortage of goods over time. The authority emphasized that the appellant's inability to explain the shortage with clear evidence and the constitution of two internal committees indicated suppression of facts, justifying the invocation of the extended period.

4. Justification for the Penalty Imposed Under Section 11AC:
The Commissioner imposed an equal amount of penalty under Section 11AC along with interest under Section 11AB. The adjudicating authority upheld this penalty, referencing the Hon'ble High Court of Madras's decision in Alagappa Cements Pvt. Ltd. v. CEGAT, Chennai, which supported the imposition of duty and penalty in cases of significant stock discrepancies and inadequate record-keeping. The authority found that the appellant's explanations were insufficient and unsupported by evidence, thus validating the penalty for suppression of facts.

Conclusion:
The adjudicating authority upheld the demand for excise duty on the shortage of goods, the invocation of the extended period under Section 11A, and the imposition of penalty under Section 11AC. The appellant's contentions regarding elongation, limitation, and suppression of facts were rejected, and the appeal was dismissed. The judgment emphasized the importance of accurate record-keeping and the consequences of significant stock discrepancies without sufficient explanation.